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A new federal database of hospital prices shows a massive disparity in medical costs. “Average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Oklahoma, to a high of $223,000 at a hospital in Monterey Park, California. Even within the same geographic area,” said Secretary of Health and Human Services Kathleen Sebelius, who spearheaded a new transparency initiative to reveal traditionally secretive hospital bills.

The Center for Medicare and Medicade Services released a public spreadsheet for the top 100 most frequently billed procedures in more than 3,000 hospitals around the country.

Pneumonia: $124,051 in Philadelphia vs. $5,093 in Water Valley, Mississippi.

(Note: for more data fun, the Washington Post has a great (non-embeddable) graphic comparing the average costs from different states)

There is some debate about how much patients, insurance providers and the government actually end up paying. “It’s true that Medicare and a lot of private insurers never pay the full charge,” said assistant professor at the University of California at San Francisco Medical School, Renee Hsia, “But you have a lot of private insurance companies where the consumer pays a portion of the charge. For uninsured patients, they face the full bill. In that sense, the price matters.”

Another possible explanation of price variation is quality: some patients might be perfectly willing to shell out an extra $100K for a better hip replacement. But, it’s not clear whether that’s the case, because we don’t have data correlating patient outcomes with price.

The technology startup community has attempted to generate their own national rankings of medical quality. Healthtap, for instance, allows patients to anonymously seek free public medical advice, which is rated up or down by a community of doctors who are active on its forums. The more likes a doctor gets, the better he is viewed among his peers.

Still much more transparency is needed to accurately assess the cost vs. benefit ratio. This is one small step in the right direction. Kudos to Secretary Sebelius.